Human epithelial cell models have been used to study 1) the role of human papillomavirus (HPV) in regulating expression of cellular genes, and 2) the molecular mechanisms involved in regulation of HPV gene expression by cytokines and hormones. To assess directly the effect of HPV on squamous differentiation, normal human cervical and foreskin epithelial cells, cells immortalized by recombinant HPV DNAs were transplanted beneath a skin-muscle flap in athymic mice. Xenografts containing normal cells formed well-differentiated stratified squamous epithelia, but cell lines immortalized by HPV types detected in anogenital cancer exhibited dysplastic morphology and molecular alterations in gene expression characteristic of intraepithelial neoplasia. Morphologic alterations were accompanied by delayed commitment to terminal differentiation, alterations in the pattern of involucrin expression and reductions in levels of involucrin and keratin I RNAs. HPV-18-immortalized cells developed dysplastic changes more rapidly than cells immortalized by HPV-16 DNA. These results show that human genital epithelial cells immortalized by HPV DNAs detected in genital cancers undergo dysplastic differentiation in vivo. The potential of specific cytokines to modulate the expression of HPV genes was examined in cultures of HPV-16-immortalized cervical cells. TGF beta-1, TGF beta-2, gamma-interferon (IFN) and leukoregulin (LR) inhibited cell growth and reversibly decreased steady state levels of HPV-16 E6/E7 RNA in cells of early passage. Alpha-IFN did not effect growth or HPV gene expression. TGF beta-l and 2, gamma-IFN, and LR markedly decreased HPV-16 gene transcription in nuclear runoff assays but had no effect on the half-life of E6/E7 RNAS. Gamma-IFN and LR also up-regulated steady state levels of RNA for class I and II histocompatibility antigens. Therefore, HPV gene expression is differentially regulated by specific cytokines produced by cervical epithelia or by leukocytes infiltrating cervical dysplasia and carcinoma.